Schork Oil Outlook: 'Where is Al Gore When We Need Him?'
ENERGY PRICES WERE MIXED ON THURSDAY… natural gas corrected and the liquids exploded. Oil prices surged yesterday, ostensibly, if media accounts are to be believed (they’re not) on news that sales of existing homes in the U.S. increased for a third straight month. We will be honest… we had no idea it required so much crude oil to resell a home in the U.S.
Whoa… you learn something new every day in this market.
As we noted in last Friday’s issue of The Schork Report, in light of last season’s restart of the Independence Hub, we expect the year-on-year surplus to narrow through August. However, recall that last summer’s injection rate was book-ended by the unscheduled shut-in to the Independence Hub in the beginning of the season and the shut-ins at the end of the season related to hurricanes Gustav and Ike. As such, barring another repeat of last year’s storm activity in the Gulf, we can expect the surplus to blow out once again as we head into the winter.
The Gulf Coast is currently afloat on a cushion of gas, 1,043 Bcf. For instance, supplies are now 6% or 60 Bcf above the end-of-season (mid November) 5-year interpolated norm and within 3% of the all-time high, 1,073 Bcf. Injections need only average 16% of the 5-year average between now and November to hit this high.
Thus, all together now… you can’t swing a cat without hitting a Btu of gas in the Gulf.
We are now five weeks past the summer solstice. This is the point of the year when we normally see the hottest temperatures and therefore the greatest demand for gas-fired cooling Btus.
But for most key market areas, this is not a normal summer.
For instance, New York City is on track to post its second coolest July since 1869 (and we know how reliable data collection methodologies were back then). Through the first three weeks of this month temperatures averaged 73.3°F or 3.4 degrees below normal. In fact, below average temps have occurred on 19 out of the first 21 days of the month, with no above-normal temps.
Temperatures have only reached 85°F once in the city, on July 17th, and have yet to reach 90°F. If this continues through the end of this month, it will be the first time since 1996 (when Al Gore was the Vice President, but apparently not concerned about global warming…. er… climate change) where 90 degrees was not reached during June or July.
Keep in mind, deliveries from underground storage through the Dog Days of summer are now the norm. To wit, the EIA reported a 1 Bcf withdrawal in the West for last week. Whereas summertime deliveries here are not as common as in the GoM region, they are not unheard of.
Given the overhang and last week’s brutal heat, especially in the Rockies, last week’s report makes sense. In any case, current supplies, 442 Bcf, are within 7½% of the alltime high, 477 Bcf. Injections between now and November need only average 35% of the 5-year average to take that high out.
In the East, where the bulk of the nation’s winter storage facilities are concentrated and where it has been anything but summer-esque, inventories rose by 56 Bcf or 4.0%. It was the sixteenth injection of the season, the sum of which is 826 Bcf.
The seasonal disposition in refills is still in deficit, i.e. injections are currently running around 9% lower as of last Friday.
Nevertheless, the year-on-year surplus is still impressive… 12.2% or 159 Bcf as of last Friday.
Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.